UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 0-22992
The Shaw Group Inc.
(Exact name of registrant as specified in its charter)
Louisiana 72-1106167
(State of Incorporation) (I.R.S. Employer Identification Number)
11100 Mead Road, 2nd Floor, Baton Rouge, Louisiana 70816
(Address of principal executive offices) (Zip Code)
(504) 296-1140
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No .
The number of shares outstanding of each of the issuer's classes of common stock
as of the latest practicable date, is as follows:
Common stock, no par value, 12,488,393 shares outstanding as
of January 6, 1998.
1
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FORM 10-Q
TABLE OF CONTENTS
Part I - Financial Information
Item 1. - Financial Statements
Consolidated Balance Sheets - August 31, 1997
and November 30, 1997 3 - 4
Consolidated Statements of Income - For the Three
Months Ended November 30, 1996 and 1997 5
Consolidated Statements of Cash Flows - For the Three Months
Ended November 30, 1996 and 1997 6 - 7
Notes to Consolidated Financial Statements 8 - 12
Item 2. - Management's Discussion and Analysis of Financial
Condition and Results of Operations 13 - 17
Part II - Other Information
Item 4. - Submission of Matters to a Vote of Security Holders 18
Item 6. - Exhibits and Reports on Form 8-K 18
Signature Page 19
Exhibit Index
2
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<TABLE>
PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
THE SHAW GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
ASSETS
(UNAUDITED) (UNAUDITED)
August 31, November 30,
1997 1997
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,357,494 $ 8,358,303
Accounts receivable, net 85,979,939 126,971,125
Receivables from unconsolidated entities 1,453,098 681,355
Inventories 76,304,426 86,448,991
Prepaid expenses 2,351,897 3,869,000
Deferred income taxes 2,855,038 2,930,751
--------- ---------
Total current assets 173,301,892 229,259,525
Investment in unconsolidated entities 4,004,736 4,124,315
Property and equipment:
Transportation equipment 4,984,130 4,931,170
Furniture and fixtures 8,455,791 8,816,993
Machinery and equipment 48,039,977 52,313,862
Buildings and improvements 22,792,452 28,595,772
Assets acquired under capital leases 317,512 317,512
Land 3,973,118 4,128,118
--------- ---------
88,562,980 99,103,427
Less: Accumulated depreciation (including
amortization of assets acquired under capital leases) (18,235,529) (20,397,214)
----------- -----------
70,327,451 78,706,213
Other assets, net 14,825,212 19,119,651
---------- ----------
$262,459,291 $331,209,704
============ ============
</TABLE>
(Continued)
The accompanying notes are an integral part of these statements.
3
<PAGE>
<TABLE>
THE SHAW GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<CAPTION>
(UNAUDITED) (UNAUDITED)
August 31, November 30,
1997 1997
---- ----
<S> <C> <C>
Current liabilities:
Outstanding checks in excess of bank balance $ 691,111 $ 4,729,787
Accounts payable 31,154,748 34,808,025
Accrued liabilities 8,544,778 20,445,662
Current maturities of long-term debt 6,366,407 7,292,391
Revolving line of credit 29,146,150 64,582,951
Current portion of obligations under capital leases 26,448 23,797
Deferred revenue - prebilled 3,582,054 4,457,146
Advance billings 833,817 10,472,388
------- ----------
Total current liabilities 80,345,513 146,812,147
Long-term debt, less current
maturities 38,933,370 36,432,278
Obligations under capital leases,
less current portion 105,681 54,769
Deferred income taxes 5,260,056 5,388,979
Shareholders' equity:
Preferred stock, no par value,
5,000,000 shares authorized; no
shares issued and outstanding --- ---
Common stock, no par value,
50,000,000 shares authorized;
19,151,309 shares issued;
12,488,393 shares outstanding 104,869,788 104,869,788
Retained earnings 39,772,718 44,479,578
Treasury stock, 6,662,916 shares (6,827,835) (6,827,835)
--------- ---------- ----------
Total shareholders' equity 137,814,671 142,521,531
----------- -----------
$262,459,291 $331,209,704
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
<TABLE>
THE SHAW GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
(UNAUDITED)
Three Months Ended
November 30,
1996 1997
---- ----
<S> <C> <C>
Income:
Sales $ 75,719,002 $ 99,742,387
Cost of sales 61,148,668 81,462,380
---------- ----------
Gross profit 14,570,334 18,280,007
General and administrative expenses 8,269,016 10,681,089
--------- ----------
Operating income 6,301,318 7,598,918
Interest expense (1,840,626) ( 1,633,907)
Other income, net 34,106 102,228
---------- ----------
(1,806,520) (1,531,679)
---------- ----------
Income before income taxes 4,494,798 6,067,239
Provision for income taxes 1,499,373 1,482,402
--------- ---------
Income before earnings from
unconsolidated entities 2,995,425 4,584,837
Earnings from unconsolidated entities 150,018 119,580
------- -------
Net income $ 3,145,443 $ 4,704,417
=========== ===========
Earnings per common share $ .30 $ .38
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
<TABLE>
THE SHAW GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
(UNAUDITED)
Three Months Ended
November 30,
1996 1997
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net income $3,145,443 $ 4,704,417
Net loss not included in reporting period - Note 4 (131,612) --
Adjustments to reconcile net income
to net cash provided by (used in) operating
activities:
Depreciation and amortization 1,700,658 2,036,081
(Earnings) from unconsolidated entities (150,018) (119,580)
Provision for deferred income taxes 54,000 --
Changes in assets and liabilities, net of effect of acquisitions:
(Increase) decrease in receivables (3,092,565) (12,908,641)
(Increase) decrease in inventories (5,699,418) ( 2,183,789)
(Increase) decrease in prepaid expenses (215,060) ( 637,659)
(Increase) decrease in other assets 42,595 ( 2,177,360)
Increase (decrease) in accounts payable 3,824,007 ( 5,658,417)
Increase (decrease) in deferred revenue - prebilled 78,250 875,092
Increase (decrease) in advanced billings (2,773,325) 4,805,571
Increase (decrease) in accrued liabilities 454,542 2,934,978
------- ---------
Net cash provided by (used in) operating
activities (2,762,503) ( 8,329,307)
---------- - ---------
Cash flows from investing activities:
Investment in unconsolidated entities (1,643,848) --
Investment in subsidiaries, net of cash received (2,493,763) (18,822,041)
Purchase of property and equipment (4,448,823) ( 2,844,765)
---------- - ---------
Net cash used in investing activities (8,586,434) (21,666,806)
---------- -----------
</TABLE>
(Continued)
The accompanying notes are an integral part of these statements.
6
<PAGE>
<TABLE>
<CAPTION>
(UNAUDITED)
Three Months Ended
November 30,
1996 1997
---- ----
<S> <C> <C>
Cash flows from financing activities:
Net increase (decrease) in outstanding checks
in excess of bank balance ( 1,152,003) 2,335,676
Net proceeds on revolving credit agreement 12,757,165 35,332,801
Proceeds from issuance of debt 2,105,000 --
Repayment of debt and leases ( 1,418,165) (3,671,555)
Distribution to members of Freeport Properties, L.C. (56,800) --
Issue common stock 8,440 --
----------- ----------
Net cash provided by financing activities 12,243,637 33,996,922
---------- ----------
Net increase in cash and cash equivalents 894,700 4,000,809
Cash and cash equivalents - beginning of period 2,967,342 4,357,494
--------- ---------
Cash and cash equivalents - end of period $ 3,862,042 $ 8,358,303
=========== ===========
Supplemental disclosures:
Cash payments for:
Interest $ 1,679,307 $ 1,651,410
=========== ===========
Income taxes $ 899,984 $ 738,257
=========== ===========
Noncash investing and financing activities:
Investment in subsidiary acquired
through issuance of debt $ -- $ 1,078,440
=========== ===========
Other current assets acquired through
issuance of debt $ -- $ 879,444
=========== ===========
Property and equipment acquired through
issuance of debt $ -- $ 85,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE>
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Unaudited Financial Information -
The financial information for the three months ended November 30, 1996
and 1997 and as of August 31, 1997 and November 30, 1997 included herein
is unaudited; however, such information reflects, in the opinion of
management, all adjustments (consisting solely of normal recurring
adjustments) that are necessary to present fairly the results of
operations for such periods. Results of operations for the interim period
are not necessarily indicative of results of operations that will be
realized for the fiscal year ending August 31, 1998.
Note 2 - Inventories -
The major components of inventory consist of the following:
(UNAUDITED) (UNAUDITED)
August 31, November 30,
1997 1997
---- ----
Finished goods $29,027,556 $ 33,368,095
Raw materials 35,256,732 37,098,833
Work in process 12,020,138 15,982,063
---------- ----------
$76,304,426 $ 86,448,991
=========== ============
Note 3 - Earnings Per Common Share -
Earnings per common share is calculated based on the weighted
average number of shares outstanding, including dilutive common stock
equivalents when material, during the periods. The weighted average
number of shares outstanding for the quarters ended November 30, 1996 and
1997 were 10,321,874 and 12,488,393, respectively.
Note 4 - Acquisitions -
Effective October 1, 1996, the Company acquired all of the
outstanding capital stock of Pipe Shields Incorporated (Pipe Shields), an
industrial pipe insulation company located in Vacaville, California, for
approximately $2.5 million in cash, net of cash received. The purchase
method was used to account for the acquisition. The excess of cost over
the estimated fair value of the assets acquired was approximately $2.1
million, which is included in other assets and is being amortized
8
<PAGE>
on a straight-line basis over 20 years. The operating results of Pipe
Shields have been included in the consolidated statements of income of
the Company from the effective date of the acquisition. The pro-forma
effect of the acquisition of Pipe Shields, had it occurred on September
1, 1996, is not material to the operations of the Company.
On January 27, 1997, the Company completed the acquisition of
NAPTech, Inc., a fabricator of industrial piping systems and engineered
piping modules located in Clearfield, Utah. The Company issued 432,881
shares of its Common Stock in exchange for NAPTech, Inc. and the 335,000
square foot facility that NAPTech, Inc. had leased from a related entity,
Freeport Properties, L.C. (Freeport). The acquisition was accounted for
using the pooling-of-interests method; accordingly, the Company's
financial information for all prior periods presented herein has been
restated to include financial information of NAPTech, Inc. and Freeport,
(collectively, "NAPTech").
Because the fiscal periods of the Company and NAPTech were not the
same, NAPTech financial statements for the 1996 fiscal year were recast
from the twelve months ended March 31, 1996 to the twelve months ended
June 30, 1996. The 1997 fiscal year of NAPTech is the same as the
Company's. As a result, the following July and August, 1996 sales and
losses of NAPTech have been excluded from the statement of income for the
fiscal year ended August 31, 1997:
Sales $ 5,194,000
=============
Net losses $ 132,000
=============
The following is a reconciliation of the amounts of sales and net
income previously reported (in the Company's Quarterly Report on Form
10-Q for the quarterly period ended November 30, 1996) to the restated
financial information for all prior periods presented herein:
Sales Net Income
----- ----------
As previously reported $67,603,615 $3,037,150
NAPTech 8,115,387 108,293
----------- ----------
As restated $75,719,002 $3,145,443
=========== ==========
Effective February 1, 1997, the Company purchased all of the
outstanding capital stock of United Crafts, Inc. (UCI), an industrial
construction and maintenance company based in Baton Rouge, Louisiana, for cash
of $8,000,000. Acquisition costs of approximately $192,000 were incurred by the
Company. The purchase method was used to account for the acquisition. The excess
of cost over the estimated fair value of the assets acquired was $4,770,000,
which is included in other assets and is being amortized on a straight-line
basis over 20 years. The estimated fair value of the assets and liabilities of
UCI as of February 1, 1997 are as follows:
9
<PAGE>
Accounts Receivable $6,040,000
Property and Equipment 2,992,000
Other Assets 4,832,000
Accounts Payable & Accrued Liabilities (3,502,000)
Advance Billings (1,277,000)
Notes Payable (1,101,000)
Deferred Income Taxes (146,000)
----------
Purchase Price (net of cash received of $354,000) $7,838,000
==========
The operating results of UCI have been included in the consolidated
statements of income from the effective date of the acquisition.
On March 20, 1997, the Company, through a newly-formed, wholly-owned
subsidiary, completed the purchase of certain assets and the assumption of
certain liabilities of MERIT Industrial Constructors, Inc. (MERIT), an
industrial construction and maintenance firm based in Baton Rouge, Louisiana,
and certain of its affiliates. Total consideration paid by the Company was
approximately $1.3 million in cash (including acquisition costs), 62,500 shares
of the Company's Common Stock valued at $1.3 million, options to purchase 25,000
shares of the Company's Common Stock at $20.25 per share, as well as the
assumption of approximately $340,000 of debt. The purchase method was used to
account for the acquisition. The excess of cost over the estimated fair value of
the assets acquired was $1,290,000, which is included in other assets and is
being amortized on a straight-line basis over 20 years. The operating results
related to the acquired MERIT assets have been included in the consolidated
statements of income from the date of the acquisition. The pro-forma effect of
the acquisition of the MERIT assets, had it occurred on September 1, 1996, is
not material to the operations of the Company.
On October 8, 1997, the Company purchased the capital stock of Pipework
Engineering and Developments Limited (PED), a pipe fabrication company in
Wolverhampton, United Kingdom, for $538,606 in cash, net of cash received, and
notes payable to former stockholders of $1,078,440. Acquisition costs of $40,176
were incurred by the Company. The purchase method was used to account for the
acquisition. The excess of cost over the estimated fair value of the assets
acquired was approximately $1.4 million, which is included in other assets and
is being amortized over 20 years using the straight-line method. The operating
results of PED have been included in the consolidated statements of income of
the Company from the date of acquisition. The pro-forma effect of the
acquisition of PED, had it occurred on September 1, 1996, is not material to the
operations of the Company.
On November 14, 1997, the Company purchased all of the capital stock or
substantially all of the assets of the principal operating businesses of
Prospect Industries PLC ("Prospect") of Derby, United Kingdom, for $16,070,259.
Acquisition costs of approximately $2,173,000 were incurred by the Company.
Prospect, a mechanical contractor and provider of turnkey piping systems serving
the power generating and process industries worldwide, operated through several
wholly-owned subsidiaries
10
<PAGE>
including Connex Pipe Systems, Inc. ("Connex"), a piping systems fabrication
business located in Troutville, Virginia; CBP Engineering Corp. ("CBP"), an
abrasion and corrosion resistant pipe systems specialist based in Pennsylvania;
Aiton Australia Pty Limited ("Aiton Australia"), a piping systems, boiler
refurbishment and project management company based near Sydney, Australia; and
Prospect Engineering Limited ("PEL"), a mechanical contractor and a provider of
turnkey piping systems located in Derby, United Kingdom. Prospect also owned a
66% interest in Inflo Control Systems Limited ("Inflo"), a manufacturer of
boiler steam leak detection, acoustic mill and combustion monitoring equipment
and related systems. Under the terms of the acquisition agreement, the Company
acquired all of the outstanding capital stock of Prospect Industries Overseas
Limited, a United Kingdom holding company that holds the entire ownership
interest in Connex and CBP, Aiton Australia and certain assets of PEL, as well
as Prospect's entire ownership interest in Inflo. The Company also assumed
certain liabilities of PEL and Prospect relating to its employees and pension
plans. The purchase method was used to account for the acquisition. The
estimated fair value of the assets and liabilities assumed as of November 14,
1997 are as follows:
Accounts Receivable $26,454,000
Inventories 7,956,000
Property and Equipment 7,279,000
Other Assets 867,000
Outstanding checks in excess of bank balance (1,703,000)
Accounts Payable & Accrued Liabilities (17,673,000)
Revolving Line of Credit (104,000)
Advance Billings (4,833,000)
----------
$18,243,000
===========
The operating results of Prospect have been included in the consolidated
statements of income from the date of the acquisition.
In connection with the Prospect acquisition, the Company incurred certain
contingent liabilities. See Note 6 to Notes to Consolidated Financial
Statements.
The following summarized unaudited income statement data reflects the
impact the above acquisitions accounted for as a purchase would have had on the
Company's results of operations if the UCI and Prospect acquisitions had taken
place on September 1, 1996:
Unaudited Pro-forma Results
for the Three-Months Ended November 30,
---------------------------------------
1996 1997
---- ----
Gross revenue $120,816,000 $137,837,000
============ ============
Net income $ 2,709,000 $ 4,229,000
============ ============
Earnings per common share $ .26 $ .34
============ ============
11
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Note 5 - Investment in Unconsolidated Entities -
During the three months ended November 30, 1997, the Company recognized
earnings of $119,580 from Shaw-Nass Middle East, W.L.L., the Company's Bahrain
joint venture (Shaw-Nass). In addition, as of August 31, 1997 and November 30,
1997, the Company had outstanding receivables from Shaw-Nass totaling $1,453,098
and $681,355 respectively. These receivables relate primarily to inventory and
equipment sold to the entity.
Note 6 - Commitments and Contingencies-
For the year ended August 31, 1997, 22% of the Company's labor force
was covered by collective bargaining agreements, all of which will expire during
the Company's fiscal year ended August 31, 1998. The Company does not expect
that the renewal of the agreements will have an adverse impact on the Company's
results of operations or financial position.
In connection with the Prospect Sale Agreement (see Note 4 to Notes to
Consolidated Financial Statements), the Company entered into several
indemnification agreements in favor of Prospect and PEL and Prospect's main
lender ("Lender"). The first agreement requires the Company to indemnify Lender
for any losses that Lender may incur in connection with certain letters of
credit, bonds and guarantees previously issued by Lender relating to projects
entered into by PEL, Connex, CBP, Aiton Australia and other subsidiaries of
Prospect. The Company has determined that its maximum exposure for indemnity
under the agreement with Lender is approximately $9.9 million at November 14,
1997. However, the Company believes that its actual exposure is much less,
particularly since many of the projects for which Lender has issued the letters
of credit, bonds and guarantees, are projects that the Company procured in
connection with the acquisition.
Additionally, the Company has agreed to indemnify each of Prospect, PEL and
Lender with respect to certain preferential creditors of Prospect and PEL.
Immediately after the closing of the acquisition by the Company of Prospect,
Lender had an administrative receiver appointed for Prospect, PEL and the
subsidiaries not acquired by the Company. The Company is obligated to indemnify
Prospect and PEL for preferential debts of PEL and Prospect in connection with
the receivership proceedings. Further, the Company has agreed to indemnify
Lender for any loss Lender may suffer as a result of the Company's failure to
perform its indemnity obligations under the Company's agreement with Prospect
and PEL concerning preferential creditors. The Company understands that the
aggregate preferential debts of Prospect and PEL as of November 14, 1997 was
$4,605,000.
On August 11, 1997, the Company announced that Shaw Power Services,
Inc., its wholly-owned subsidiary, and China Baoyuan Industry and Trade Company,
a wholly-owned subsidiary of China National Nuclear Corporation, have signed a
letter of intent to establish joint-venture ownership of a piping systems
fabrication facility located in Dalian, Peoples Republic of China (P.R.C.).
Under the terms of the letter of intent, which is expected to be consummated in
April, 1998, the Company's ownership and income participation in the
joint-venture is contemplated to be at least 60%. The formation of the
joint-venture is subject to, among other things, the negotiation and execution
of a definitive agreement and regulatory approvals by the P.R.C. It is
anticipated that the Company will invest approximately $7 million of cash and
equipment, as well as its technology in the joint venture. It is the intention
of the Company for the joint-venture facility to be operational by the end of
fiscal 1998.
On October 15, 1997, the Company entered into a letter of intent with
Vekamaf Holding B.V. of Rotterdam, Holland, whereby the Company will acquire all
of the outstanding capital stock of Cojafex B.V., a Vekamaf subsidiary. Cojafex
owns the technology for the design and manufacture of certain induction pipe
bending machines used for bending pipe and other carbon steel and alloy items
for industrial, commercial and architectural applications. Under the terms of
this letter of intent, Shaw will pay an aggregate of $9.5 million, $5 million of
which will be paid at the closing of the transaction and the remainder of which
will be paid over six years. The closing of the transaction is contingent upon
the favorable outcome of a due diligence review and the negotiation and
execution of definitive agreements, among other things, and is expected to take
place in January of 1998.
In connection with a contract with a certain customer, the Company is
committed to open a fabrication facility in Texas. The Company expects to spend
approximately $1.8 million to open this facility. As of November 30, 1997, the
Company has spent about $.7 million on the project.
12
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Introduction
The following discussion summarizes the financial position of The Shaw
Group Inc. and its subsidiaries (hereinafter referred to collectively, unless
the context otherwise requires, as the "Company" or "Shaw") at November 30,
1997, and the results of its operations for the three-month period then ended,
and should be read in conjunction with the financial statements and notes
thereto included elsewhere in this Quarterly Report on Form 10-Q.
On January 27, 1997, the Company completed the acquisition on NAPTech,
Inc. (NAPTech), a fabricator of industrial piping systems and engineered piping
modules located in Clearfield, Utah. The Company issued 432,881 shares of its
Common Stock in exchange for NAPTech and the 335,000 square foot facility that
NAPTech had leased from a related entity. The acquisition was accounted for
using the pooling-of-interests method; accordingly, the Company's financial
information for all prior periods presented herein has been restated to include
financial information of NAPTech. See Note 4 to Notes to Consolidated Financial
Statements.
"Safe Harbor" Statement under the Private Securities Litigation Reform
Act of 1995: The statements in this quarterly report that are not historical
facts may be forward looking statements. The forward looking statements are
subject to certain risks and uncertainties, including without limitation those
identified below, which could cause actual results to differ materially from
historical results or those anticipated. Readers are cautioned not to place
undue reliance on these forward looking statements, which speak only as of their
dates. The Company undertakes no obligation to publicly update or revise any
forward looking statements, whether as a result of new information, future
events or otherwise. The following factors could cause actual results to differ
materially from historical results or those anticipated: adverse economic
conditions, the impact of competitive products and pricing, product demand and
acceptance risks, the presence of competitors with greater financial resources,
costs and financing difficulties, the results of financing efforts, delays or
difficulties in the production by the Company or its suppliers, the strength or
weakness of the U.S. dollar relative to foreign currencies, and delivery or
installation of products.
Liquidity and Capital Resources:
Net cash used in operations was $8.3 million for the three months ended
November 30, 1997, compared to $2.8 million for the same period of the previous
fiscal year. For the three months ended November 30, 1997, net cash was
favorably impacted by net income of $4.7 million and increased
13
<PAGE>
advanced billings from customers of $4.8 million. Offsetting these positive
factors were increases in receivables of $12.9 million and reductions in
accounts payable of $5.7 million. The increase in accounts receivable resulted
primarily from a higher level of sales and minor collections delays. The $12.9
million represents a 15% increase over the August 31, 1997 receivable balance,
whereas sales for the quarter ended November 30, 1997 increased 13% over sales
for the quarter ended August 31, 1997.
Net cash used in investing activities was $21.7 million for the three
months ended November 30, 1997, compared to $8.6 million for the same period of
the last fiscal year. During the three months ended November 30, 1997 the
Company purchased two subsidiaries, PED and Prospect, primarily for cash
amounting to approximately $18.8 million. See Note 4 to Notes to Consolidated
Financial Statements. The Company also purchased approximately $2.8 million of
property and equipment, consisting of $.7 million for the new facility in Texas
(See Note 6 to Notes to Consolidated Financial Statements), $.5 million of
cranes for the UCI subsidiary and other purchases of $1.6 million.
Net cash provided by financing activities was $34.0 million for the
three-month period ended November 30, 1997, compared to $12.2 million provided
for the three months ended November 30, 1996. For the three months ended
November 30, 1997, $35.3 million of cash was provided from the Company's
revolving line of credit agreement with its commercial lenders. The revolving
line of credit facility has been used generally to provide working capital and
fund fixed asset purchases and subsidiary acquisitions. Cash was also provided
by a $2.3 million increase in outstanding checks in excess of bank balances,
while funds of $3.7 million were used to pay down outstanding debt.
Material Changes in Financial Condition:
The Company's current assets increased $56.0 million from $173.3 million
as of August 31, 1997 to $229.3 million as of November 30, 1997, primarily as a
result of a $40.2 million increase in accounts receivable and a $10.1 million
increase in inventories. Both of these increases were primarily attributable to
the acquisition of Prospect on November 14, 1997 (See Note 4 to Notes to
Consolidated Financial Statements). As of November 30, 1997, receivables and
inventory included in the Consolidated Financial Statements of the Company
attributable to Prospect were $26.7 million and $10.0 million, respectively. The
additional increase in receivables is primarily attributable to a higher sales
level for the quarter ended November 30, 1997 as compared to the sales for the
quarter ended August 31, 1997.
Property and equipment increased $10.5 million from the $88.6 million at
August 31, 1997 to $99.1 million at November 30, 1997. This increase resulted
primarily from $7.5 million of assets acquired in the Prospect and PED
acquisitions (see Note 4 to Notes to Consolidated Financial Statements), $.7
million of expenditures on the new facility in Texas (see Note 6 to Notes to
Consolidated Financial Statements) and cranes of $.5 million purchased for the
UCI subsidiary.
The Company's current liabilities increased $66.5 million from $80.3
million at August 31, 1997
14
<PAGE>
to $146.8 million at November 30, 1997. The major increases were in the
Company's revolving line of credit ($35.4 million), accrued liabilities ($11.9
million) and advanced billings ($9.6 million). The revolving line of credit has
been used generally to provide working capital and fund fixed asset purchases
and subsidiary acquisitions. The majority of the increase in accrued liabilities
relates to approximately $9.0 million of liabilities assumed in the Prospect
acquisition. Approximately $4.8 million of the $9.6 million increase in advanced
billings also relates to liabilities assumed in the Prospect acquisition. The
remaining $4.8 million increase in advanced billings relates to contractual
billing provisions in current contracts. For a discussion of the Prospect
acquisition, see Note 4 to Notes to Consolidated Financial Statements.
Results of Operations
The following table sets forth for the periods indicated the percentages
of the Company's net sales that certain income and expense items represent:
(Unaudited)
Three-Months Ended
November 30,
1996 1997
---- ----
Sales 100.0% 100.0%
Cost of sales 80.8 81.7
---- ----
Gross profit 19.2 18.3
General and administrative expenses 10.9 10.7
---- ----
Operating income 8.3 7.6
Interest expense (2.4) (1.6)
Other income, net -- .1
---- ----
(2.4) (1.5)
---- ----
Income before income taxes 5.9 6.1
Provision for income taxes 1.9 1.5
---- ----
Income before earnings from
unconsolidated entities 4.0 4.6
Earnings from unconsolidated
entities .2 .1
---- ----
Net income 4.2% 4.7%
=== ===
Sales increased 31.7% to $99.7 million for the three months ended
November 30, 1997 as compared to $75.7 million for the same period in the prior
year. Approximately $17 million of the increase relates to sales of subsidiaries
acquired subsequent to November 30, 1996. The remaining
15
<PAGE>
increase relates primarily to an increase in international sales and the
expansion of the Company's domestic construction operations, partially offset by
reductions in other domestic projects.
The Company's sales by geographic region for the periods indicated were
as follows:
Three-Months Ended November 30,
1996 1997
---- ----
Geographic Region (in millions) % (in millions) %
----------------- ------------- - ------------- -
U.S.A. $49.0 65% $58.6 59%
Far East/Pacific Rim 17.9 24 21.5 21
Middle East 4.8 6 7.6 8
Latin America 1.7 2 5.7 6
Europe 1.1 1 5.3 5
Other 1.2 2 1.0 1
--- - --- -
$75.7 100% $99.7 100%
===== === ===== ===
The Company's sales by industry sector for the periods indicated were as
follows:
Three-Months Ended November 30,
1996 1997
---- ----
Industry Sector (in millions) % (in millions) %
--------------- ------------- - ------------- -
Electric Power $28.5 42% $34.6 35%
Chemical 22.3 33 29.4 30
Refining 11.6 17 13.4 13
Petrochemical * -- 9.0 9
Oil and Gas * -- 5.3 5
Other 5.2 8 8.0 8
--- - --- -
67.6 100% $99.7 100%
=== ===== ===
Pooled Sales of NAPTech 8.1*
---
$75.7
=====
* Sales by 1997 industry sector are not available.
The gross profit percentage for the three-month period ended November
30, 1997 decreased to 18.3% from 19.2% for the same period the prior year. Major
factors contributing to this decrease were the higher volume in construction
work, which normally produces a lower gross profit margin, and the reduced
demand for the Company's manufactured stainless goods.
General and administrative expenses increased from $8.3 million for the
quarter ended November 30, 1996 to $10.7 million for the quarter ended November
30, 1997. Approximately $2.0 million of this increase relates to the integration
of UCI, PED and Prospect into the Company's business; the remainder relates to
variable costs associated with increased sales. As a percentage of sales,
however, general and administrative expenses decreased from 10.9% of sales for
the three months ended November 30, 1996 to 10.7% for the three months ended
November 30, 1997.
16
<PAGE>
Interest expense for the quarter ended November 30, 1997 was $1.6
million, compared to $1.8 million for the same period last year. Interest
expense decreased $.2 million due to reduced borrowings. Average borrowings for
the quarter ended November 30, 1997 were $88 million, compared to $98 million
for the same quarter the previous year.
The Company's effective tax rates for the quarter ended November 30,
1996 and 1997 were 33.6% and 24.4%, respectively. The lower tax rate for the
quarter ended November 30, 1997 relates to the mix of foreign versus domestic
work.
Total backlog increased to $271 million at November 30, 1997 compared
to $161 million reported at the end of the first quarter of fiscal 1997 and $253
million reported at August 31, 1997. The increase in backlog for the period
reflects $42 million in projects assigned to the Company with the acquisition of
Prospect, which was purchased by the Company in November 1997. See Note 4 to
Notes to Consolidated Financial Statements. The Company also recorded strong
project bookings for its construction group during the first quarter of fiscal
1998.
Financial Accounting Standards Board Statements
- -----------------------------------------------
In February, 1997, Statement of Financial Accounting Standards No. 128
- -- "Earnings Per Share" ("SFAS 128") was issued which establishes standards for
computing and presenting earnings per share ("eps"). Under SFAS 128, primary eps
is replaced with basic eps. Basic eps is computed by dividing income applicable
to common shares by the weighted average shares outstanding; no dilution for any
potentially convertible shares is included in the calculation. Fully diluted
eps, now called diluted eps, is still required; however, when applying the
treasury stock method, the average stock price is used rather than the greater
of the average or closing stock price for the period. Under SFAS 128, basic eps
and diluted eps for the periods ended November 30, 1996 and 1997 were not
materially different from the eps reported by the Company. SFAS 128 is effective
for financial statements issued for periods ending after December 15, 1997.
17
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fiscal quarter ended November 30, 1997, there were
no matters submitted to a vote of security holders by the Company.
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
Exhibit Number Description
-------------- -----------
2.1 Sale Agreement dated November 14, 1997,
between Prospect Industries, plc,
Prospect Engineering Limited, Dunn
International Limited and The Shaw Group
Inc. (incorporated by reference from the
Company's Current Report on Form 8-K
dated December 1, 1997.)
11 Computation of Earnings Per Share
27 Financial Data Schedule
B. Forms 8-K
On December 1, 1997, after the end of the first quarter of fiscal
1998, the Company filed a Current Report on Form 8-K dated December 1,
1997, reporting the details of the acquisition by the Company, on November
14, 1997, of all of the capital stock or substantially all of the assets of
the principal operating businesses of Prospect Industries, plc of Derby,
United Kingdom.
18
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE SHAW GROUP INC.
Dated: January 14, 1998 /s/ Edward L. Pagano
--------------------
Chief Financial Officer
(Duly Authorized Officer)
19
<PAGE>
THE SHAW GROUP INC.
EXHIBIT INDEX
Form 10-Q Quarterly Report for the Quarterly Period ended November 30,
1997.
Exhibit Number Description
- -------------- -----------
2.1 Sale Agreement dated November 14, 1997, between
Prospect Industries, plc, Prospect Engineering
Limited, Dunn International Limited and The Shaw
Group Inc. (incorporated by reference from the
Company's Current Report on Form 8-K dated
December 1, 1997.)
11 Computation of Earnings per Share
27 Financial Data Schedule
20
<PAGE>
EXHIBIT 11
Computation of Earnings Per Share
Three Months Ended
November 30,
1996 1997
---- ----
PRIMARY (1):
Weighted average shares outstanding 9,957,268 12,488,393
Net effect of dilutive stock options
based on the Treasury Stock method
using average market price 364,606 *
---------- ----------
10,321,874 12,488,393
========== ==========
Net income $3,145,443 $ 4,704,417
========== ===========
Per share amount $ .30 $ .38
========== ===========
* Outstanding stock options did not materially affect earnings per share
for the three months ended November 30, 1997.
(1) Fully diluted earnings per share amounts are not presented in this
exhibit since they are not materially different from the primary
earnings per share amounts.
21
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<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000914024
<NAME> THE SHAW GROUP INC.
<MULTIPLIER> 1
<CURRENCY> U S DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> NOV-30-1997
<EXCHANGE-RATE> 1
<CASH> 86,448,991
<SECURITIES> 0
<RECEIVABLES> 126,971,125
<ALLOWANCES> 0
<INVENTORY> 8,358,303
<CURRENT-ASSETS> 229,259,525
<PP&E> 99,103,427
<DEPRECIATION> 20,397,214
<TOTAL-ASSETS> 331,209,704
<CURRENT-LIABILITIES> 146,812,147
<BONDS> 0
0
0
<COMMON> 104,869,788
<OTHER-SE> 37,651,743
<TOTAL-LIABILITY-AND-EQUITY> 331,209,704
<SALES> 99,742,387
<TOTAL-REVENUES> 99,742,387
<CGS> 81,462,380
<TOTAL-COSTS> 81,462,380
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,633,907
<INCOME-PRETAX> 6,067,239
<INCOME-TAX> 1,482,402
<INCOME-CONTINUING> 4,704,417
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,704,417
<EPS-PRIMARY> .380
<EPS-DILUTED> .380
</TABLE>
